TAYLOR ON GOLD
The Stealth Bull Market for Gold
As the chart below illustrates, we are in the third year of a bull market
for gold, but I would be surprised if even 1% of the investing public in
the U.S. is aware or even cares to know that fact. What you see in this
chart is a monthly average gold price based on the London P.M. Fix and then
20-month and 40-month moving averages.
Richard Russell made the point last week that one of the reasons few people
have caught on to the fact that we are in pronounced gold bull market is
because the yellow metal has risen relatively suddenly and then trended
sideways for quite a few months. The pattern resembles a stair step
pattern, as you can see above. As soon as the yellow metal makes quite a
move upward, it spends the next six to nine months declining and then
making up the losses. Then we get another surge to a higher level, to be
followed by another six to nine months of declines or sideways action. For
Americans who want, demand, and must have instant gratification, a
six-month stretch of markets going nowhere fast is like a zillion years of
eternity.
I have not talked much recently about manipulation of the gold markets, but
with all my heart I believe they are manipulated (managed), because nothing
is a bigger threat to the establishment's financial position than gold and
the threat that citizens will cast aside worthless paper money and demand a
currency of intrinsic value for their work and toil as well as for their
savings.
But the Fed and the banks who own the Fed, and the establishment as a
whole, who profits from money created out of thin air, is dead set against
using a money like gold that possesses intrinsic value. Why so? Because
they would not be able to rob and steal from the citizens, as they do by
way of money that is created out of thin air. The U.S. government could not
continue its relentless march toward fascism/communism by bidding away
resources from the private sector via Federal debt financing.
George Bush or whoever is President would not be able to engage in
undeclared wars if the wars had to be paid for by raising taxes rather than
simply issuing more debt that is funded by printing press money. It is a
hellish immoral system we have. The Christian right may be vocal about
abortion and other forms of murder, but why is it not challenging this
grand scheme of theft, which I always thought was considered a sin by all
walks of the Christian faith, not to mention Judaism and Islam?
Paul Volcker Said, "Letting Gold Go to $850 Was a Mistake."
In looking back at the rise of gold from $35 to $850 during the 1970s',
Paul Volcker said, "It was probably a mistake to allow gold to rise so
high." Not only does that statement presuppose that the U.S. could have
controlled the gold price, but it also suggests the establishment's
arrogance in assuming they have a right and obligation to do so. How anyone
believes gold is not manipulated from time to time is a mystery to me,
given all the evidence provided by the Gold Anti Trust Action Committee
(GATA), Reginald Howe's lawsuit as well as the Blanchard lawsuit, and given
the importance of keeping the public believing in paper as money rather
than gold. I guess people simply believe what they want to believe.
And so, I take it as a given that the gold price is "manipulated," or
"managed," if that word is more acceptable to you. To keep the public
believing in the system, the gold price must be "managed."
Yet the forces of nature are powerful. The U.S. is in a major economic,
social, and ultimately military decline. But as our policy makers try to
convince us all is well and that everything is under control, with each
lie, Uncle Sam's nose, like that of Pinocchio's, keeps getting longer and
longer until the big lie can no longer be hidden. The gold price as
pictured in the chart above is like Uncle Sam's nose. As the old saying
goes, you can fool some of the people some of the time but you can't fool
all of the people all of the time. And while Americans may be gullible with
respect to the big paper money lies coming out of the Fed (like Alan
Greenspan telling Congressman Paul that central banks are now so good at
managing money a gold standard is no longer needed), many foreign nations
are not so trusting of Uncle Sam. And so we see virtually all the Asian
countries liberalizing their laws to encourage their citizens to take the
excessive number of dollars Alan Greenspan has printed and buy gold with
them. As dollars become more and more abundant, they can't help but decline in value against all manner of tangible assets until of course the day when the inflationary binge is slung into a deflationary reverse. Then gold,
followed by fiat money (cash under the mattress), will be about the only
liquid asset you will want to own.
Will the Establishment Suppress Gold Once Again?
Can the establishment prevail over gold and through monetary policy usher
in a new era of paper money wealth? Last week, one talking head on CNBC or
Bloomberg suggested gold would soon hit a ceiling because of the raising
rate structure. If the Fed were aggressively fighting inflation as it did
starting in 1980, I would say we might see some significant weakness in
gold in the near term. However, this Fed is not doing anything like the
Volcker Fed did in 1980. To the contrary, Greenspan has been a
chicken-hearted chairman who always opts for the easy way out. Whenever
there is any serious threat of recession or deflation, he quickly turns
monetary policy around 180 degrees and guns the money supply like there is
no tomorrow.
I understand Greenspan's fear. The American economy is fundamentally far
more threatened by rising interest rates now than in 1980 because of the
huge indebtedness of Americans, their zero savings nest egg, and our
enormous trade deficit. But here is where the talking heads' conventional
wisdom breaks down with respect to gold and interest rates.
Gold is money. In fact, whenever people have been free to choose what they
use as money, they have chosen gold and/or silver. And when the financial
system's excesses begin to cause stresses and strains to develop in a
financial system, that is when gold performs better than virtually every
other imaginable asset you may hold. So, gold is negatively correlated with
everything paper. When most things tangible begin to head over a cliff
toward their rightful value (which would be apparent were it not for
inflationary fantasies caused by money creation), gold shines brightest,
unlike other metals that are truly commodities. Gold is money, as Goldcorp
proudly proclaims with its corporate slogan.
This past Tuesday, August 16, I was a guest on Canada's RobTv on The
Business News with Howard Green. As evidence that gold is money, I pointed
out the fact that there is a 55-year aboveground gold supply in the world.
The next closest in terms of large aboveground supply is with silver which
has something like a seven- or eight-year aboveground supply. By contrast
there is almost always less than one year of aboveground supply of copper,
lead, zinc, and other base and industrial metals. Gold and, to a lesser
extent, silver are hoarded by people who keep it as an insurance policy and
store of wealth because of the historically predictable event of currency
debasement by politicians. Like the fox guarding the chicken coop,
politicians and the bankers-their partners in crime-if unchecked (as ours
currently are), will inevitably print so much currency out of thin air that
they end up destroying fiat or fake money. What is inevitably left is real
money-honest money-namely, gold and silver. That is simply a repetitious
historical fact. If you ignore it, you will perish, financially speaking.
WATCH EQUITIES FOR CLUE ON GOLD
For a clue as to when the next step up will occur, I think you need to keep
your eyes on the equity markets. We have had a cyclical bull market within
the secular bear market that began in 2000. The next leg down in the equity
markets is likely to be a "humdinger," because the next leg down will take
values closer to where they historically reside in a bear market. We are
also watching bond markets as well as the oil and housing markets very
closely.
If Greenspan remains true to form, we would expect him to begin printing
money like mad at the first signs of recession or any major problems in the
financial markets. More than all the demand in China and India put
together, "Easy Al" is responsible for high oil prices. If Greenspan had
opted for a responsible monetary policy over the years, our trade balance
would not be such a problem and the global demand for oil would not be
anything close to where it is. Or if demand for oil remained strong, an
honest monetary policy would mean consumers and corporations would have to cut back on some other expenditures. If the U.S. dollar, the world's
reserve currency, were not so recklessly created out of thin air, oil price
would fall in line along with a much-needed economic recession.
August 21, 2005
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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